Why build instead of buy?

When you think about investing in property, a big question that comes up is: should you buy an existing home or build one? Building an investment property can feel like a bigger task, but it gives you options for designing a home that suits what renters want today. In some cases, you might pay less stamp duty because you’re only buying the land at first. If you’re considering this path, it helps to know what’s involved. We’ll cover the benefits and risks of building, explain how construction loans work, and share tips to help you finance your build.

Should you build an investment property?

Let’s explore the pros and cons of an investment property build.

Advantages

  • Stamp duty savings: In many cases, you only pay stamp duty on the land, not the finished home. This can save you thousands of dollars upfront.

  • Energy efficiency and modern standards: New builds often include better insulation, energy-saving appliances and smart design. These features can lower running costs and attract tenants.

  • Tax benefits: You may be able to claim depreciation on items like appliances, flooring and fixtures. These deductions can reduce your taxable income.

  • Instant equity potential: If your property is worth more than what you spent to build it, you gain equity straight away. This can help you borrow more or sell for a profit.

  • Negative gearing opportunities: If your rental income is less than your expenses, you may be able to claim the loss against your other income. This strategy, known as negative gearing, is often used by investors with strong cash flow.

Disadvantages

  • Limited location choices: New developments are often built in outer suburbs or growth areas. These places may not have the same demand or rental returns as established neighbourhoods. Research is key.

  • Budget blowouts: Building costs can change quickly. You may face unexpected expenses like changes in materials, delays or extra fees. It’s important to have a contingency fund handy.

  • No income until completion: Unlike buying an existing property, you won’t earn rental income while the home is being built. This means you’ll need to cover loan repayments and other costs until the build is finished.

  • Time and stress: Building takes time. You’ll need to manage approvals, builders, inspections and timelines.

  • Market risk during construction: Property markets can shift while your home is being built. If prices fall or demand drops, your finished property might be worth less than expected. This can affect your rental returns or resale value, especially if you're relying on short-term gains.

Financing basics for building

Getting the right loan is one of the most important parts of building an investment property. A construction loan works differently from a regular home loan, and it’s designed to match the way building happens in stages. Here’s how it actually works:

Land purchase

You start by buying the land. This is when you pay your deposit and settle the contract. The bank may release the first part of the loan here.

Slab stage

Once the foundation is poured, the builder sends an invoice and the bank releases the next part of the loan.

Frame stage

After the walls and roof frame go up, another payment is made. This keeps the project moving without needing all the money upfront.

Lock-up stage

When the outside of the house is sealed (windows, doors, roof), the bank releases the next drawdown.

Completion stage

The final payment happens when the build is finished and ready for handover.

Each stage needs approval before your lender releases funds, so it’s important to stay organised. You’ll also need to budget for interest repayments during the build, as you’ll be paying on the amount drawn down so far.

Get expert help

If you’re thinking about building an investment property, start by running your numbers. Use our home loan calculators to check your borrowing capacity, equity position, stamp duty or estimate home loan repayments. Next, speak to a home loan expert who can help you understand your options, avoid common mistakes and choose the right loan for your situation and strategy.

Here’s why speaking to an expert is a smart move:

  • Tailored advice: Everyone’s financial situation is different. A loan expert can look at your income, goals and budget to recommend the best way forward.
  • Help with fast loan approval: Construction loans have more steps than regular home loans. An expert can guide you through the paperwork and make sure everything is in order.
  • Support during the build: From choosing a builder to managing payments at each stage, having someone to answer questions can reduce stress and save time.
  • Planning for the future: A good loan strategy doesn’t just cover the build. It also helps you plan for rental income, future borrowing and long-term growth.

Building can be rewarding, but it’s not something you have to figure out alone. With the right support, you can make confident decisions and set yourself up for success.

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Terms and Conditions

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial and taxation advice before acting on any information in this article.

Target Market Determinations for these products are available at nab.com.au/TMD.